How does a bike loan calculator work?

Posted by neha sharma on April 29th, 2019

A two wheeler loan is one of the most popular loan items for individuals. Bike finance enables a person to invest in a two wheeler of their choice and get finance from a lender. Getting a two wheeler loan is very simple in India. With increased competition between different lenders, it is possible to avail bike finance very quickly.

Lenders usually give out bike loans to the extent of 80% to 90% of the value of the bike. This value is calculated based on the on-road price of the bike. The on-road price means the ex-showroom price or the price at which a customer can buy the bike. So, a lender will finance between 80% to 90% of the cost of the bike and any amount over and above will have to be funded by the customer.

With digital banking, it is no longer necessary to visit a bank branch to get these details about bike finance clarified. It is possible to find out loan eligibility, the amount that the lender will give out and also the monthly installment amount. This can be found out using a bike loan calculator. A bike loan calculator is a simple calculator that helps to find out the monthly installment amount. However, unlike a personal or a home loan where the loan amount is fixed and decided, the loan amount in bike finance depends on the model and company selling the bike.

The first step to using a bike calculator is to input the model number and company of the bike. This provides information to the lender. The next step is to input the expected on road price of the bike. The on road price of the bike will be used by the lender to calculate the loan eligibility.

Some lenders have bike loan calculators with the rate of interest imbibed in the calculator. This means you do not need to input the rate of interest. Whereas in other simple bike loan calculators, you will need to enter the principal amount, the rate of interest, and the tenure. Regardless of the calculator, you will be able to find out the monthly installment amount.

How does a bike loan calculator work?

A bike loan calculator uses this formula to calculate the monthly installment amount:

P x R x [ (1+ R)^ N] / [ (1+ R) ^ N-1]

Where:

P= Principal or loan amount

R= Rate of Interest on loan

N=Tenure of loan in years

Once all these inputs are entered, the calculator calculates the value of the monthly installment. This installment includes both the principal and the interest amount. However, the loan calculator is only indicative of the EMI amount. The final amount approved and the installment depends on the lender.